Debunking Life Insurance Myths

There are so many myths surrounding life insurance policies and this is partly fueled by the idea that life insurance is a get-rich-quick scheme. While putting life insurance within the same level as investments is still a matter of dispute, you can see for yourself that betting that you’ll bite the big one within a specified number of years and being paid for that is hardly the same as investing in stocks. Aside from that, here are a few other myths that require debunking:I don’t need a policy since I’m single and do not have any dependents.
It’s not just people with dependents who can benefit from life insurance. Individuals with financial obligations can benefit from any policy’s face value. The pay-out can be used to settle any existing debts. If you don’t have any loans, the cost of dying can be exorbitant and this is where life insurance policies come in. Aside from the cost of being ill, funeral expenses can be defrayed by the money your insurance company pays you.

The face value of the policy I need only has to be equal to twice my annual salary.
If you want to leave your dependents with enough to prevent them from going through a financial bind, you need to think about your debts, your income and your future obligations. Aside from totaling all of your debts, you need to add a little amount for interest. $500,000 plus the amount of your annual salary is the baseline that you need for income replacement that is if you instruct your dependents to invest the lump sum at 8 percent interest per year. Finally, you need to include your future obligations like the amount you need to send your kids to college.

Term life insurance at work will do just fine.
If you’re single and do not have any dependents, then that might be true. But if you’re the sole breadwinner for your family, your work policy’s coverage might not be enough. Compare your existing work policy’s face value to the amount which you really need to leave your dependents with enough.

Buy term and invest the difference.
While this seems like a rational advice, keep in mind that the cost of insurance increases dramatically as you age and relying on term insurance may not be affordable when you approach your 60s or 70s. On the other hand, going for whole life insurance ensures consistent cost of premiums with a cash value that builds up.